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The EDITH and LORNE PIERCE 
COLLECTION o/CANADIANA 




Queen's University at Kingston 



r wry 



Preface 



In this booklet, in question and 
answer form, you will find some 
clearly stated facts which reveal 
the realities of Canada's bank- 
ing system, which is recognized 
throughout the world for its sound- 
ness and progressive character. 
This information is offered in the 
interests of clearer understanding. 



Questions and Answers 
About Canada's Banks 



1. Q. — What is a chartered bank? 

A. — A chartered bank in Canada is a commer- o/ f chartered 
cial bank operating under the limitations bank 
and restrictions of The Bank Act, and 
competing with nine others for your 
business. 

2. Q.— What business? 

A. — Principally the safeguarding of your money bartered * 
in the form of deposits; mobilizing the banks 
savings of millions of Canadians on the one 
hand, and providing facilities for their 
bank borrowings on the other ; and in addi- 
tion providing convenient chequing ac- 
counts and many other banking services 
upon which you and the rest of the com- 
munity rely. 

To name a few : safekeeping of valuables services 
and documents ; custody of securities, with 
clipping of coupons and crediting proceeds 
to customers' accounts; safety deposit 
boxes; collection of notes, drafts and 
accounts; issuance and encashment of 
money orders; commercial and travellers' 
letters of credit; money transfers to all 
parts of Canada and foreign countries by 
mail or telegraph, and many other useful 
services. 

3. Q. — How many chartered banks are there in 

Canada? 

A. Ten. Ten banks 



Names 



4. Q. — Name them. 

A. — In the order of their coming into existence 
they are as follows : 
Bank of Montreal 
The Bank of Nova Scotia 
The Bank of Toronto 
The Provincial Bank of Canada 
The Canadian Bank of Commerce 
The Royal Bank of Canada 
The Dominion Bank 
Banque Canadienne Nationale 
Imperial Bank of Canada 
Barclays Bank (Canada) 



55,731 
shareholders 



5. Q. — Who owns these banks? 

A. — 55,731 shareholders. 



Shareholders 

ordinary 

people 



Q. — What kind of people are these shareholders 
— big shots? 

A. — No — just ordinary Canadians like you and 
me; more than 250 different occupations 
are represented among the shareholders, 
chiefly men and women of moderate means 
who have put their savings into bank 
shares as an investment. 



Occupations oi 
shareholders 



71 per cent 
Canadians 



7. Q. — You said more than 250 occupations. What 
are some of them? 

A. — Accountants, actors, barbers, bankers, bee- 
keepers, boat-builders, bricklayers, car- 
penters, cheesemakers, clergymen, dairy- 
men, dentists, doctors, drovers, druggists, 
farmers, fishermen, forest rangers, funeral 
directors, grocers, insurance agents, jailers, 
journalists, linotypists, lumbermen, miners, 
oil operators, plumbers, policemen, railway 
employees, ranchers, sailors, sheriffs, 
stenographers, stevedores, tobacco farmers, 
trappers and others. 

More than 71 per cent of the share- 
holders are Canadians living in Canada. 
They are well represented in every province. 



8. Q. — What is the total of the shareholders' in- 
vestment in the banks? 

A.— At the end of 1948 it had reached foment 1 ' 8 ' 
$340,000,000. 



9. Q. — Do shareholders receive large dividends? 

A. — No. The dividends paid to shareholders by 
all chartered banks in 1948 averaged 
only $4.31 on every $100 of shareholders' 
funds invested in the business. Net profits 
of all banks averaged one quarter of one 
cent on each dollar of their total assets. 
Few businesses get along on so small a 
margin. 



$4.31 on 
every $100 



Small margin 



10. Q. — Why do you say that shareholders receive 
only $4.31 on every $100 of equity? 

A. — The par value of a bank share is fixed at 
$10 by law. Dividends are declared on this 
statutory par value, but, in addition to the 
par value, the shareholders have put into 
the business more than as much again. 



11. Q. — Please explain that. 

A. — Shares in the banks — at the time of issue — 
were sold above par. The shareholder may 
have invested as much as $200 for a share 
then bearing a fixed legal par value of $100. 
His first $100 became part of the bank's 
capital, and the premium he paid above 
par went to a reserve fund for the added 
protection of depositors. In addition, the 
shareholder, over the lifetime of the bank, 
has left in the business each year some 
undivided profits. These sums, accumula- 
ting over all the years since the bank was 
founded, have been added to the reserve 
fund and have thereby increased the equity 
the shareholder has in the business. 



Dividends 
related to 
equity 



Management 
of banks 



Directors 



A custodian 
of money 



Secrecy 



12. Q.— And stated briefly? 

A. — The shareholder's equity, then, is the sum 
total of: the par value of the stock, the 
premium the shareholder paid over and 
above the par value of the stock, and some 
undivided profits left in the business over 
a long period of years. 

13. Q. — Who manages the banks? 

A. — Experienced men who rose from the ranks 
of junior officers. Each bank has its gen- 
eral manager, assistant general managers, 
executive staffs, branch managers and 
their assistants. Advance has been made 
on the basis of ability, character and under- 
standing of how to make banks useful as 
well as sound. 

14. Q. — Who are the directors? 

A. — Representatives of the shareholders elected 
by ballot at each annual meeting. The 
directors appoint the management of the 
bank and otherwise act as do the directors 
of any company. No man may be a director 
of more than one bank. 

15. Q. — A chartered bank is really a custodian of 

my money. Is that correct? 

A. — A chartered bank is not only the custodian 
of your money on deposit, but also is the 
guardian of your confidential affairs con- 
cerning that money and the transactions 
relating to it. 

16. Q. — So that is why my bank account is safe at 

present from prying eyes? 

A. — Yes, every bank employee on entering the 
service of the bank must sign a declaration 
of secrecy concerning customers' affairs. 
Some banks emphasize the importance of 
this by requiring employees to renew the 
declaration year by year. This strict secrecy 
is one of the foundations of our present 
banking system. 



6 



17. Q.— Why is it called a "chartered" bank? 

A. — Because it derives its permission to do 
business, under certain conditions and 
restrictions, from a "charter" granted and 
kept up to date by Parliament. A bank's 
charter is the Act of Parliament entitled 
"The Bank Act," in which is laid down the 
conditions under which the banks must 
operate. Banking services are adapted 
from time to time to serve the new needs in 
the country's changing economy. 



Why 
"chartered* 



18. Q. — How are changes in banking effected? 

A. — By periodical revisions of The Bank Act 
conducted on the advice of a Committee of 
50 or more members of the House of Com- 
mons, and of a Committee of the Senate. 
Seven times since 1871 The Bank Act has 
been revised by Parliament. Each periodi- 
cal revision has altered or expanded the 
banking system to meet some new need. 
The latest revision took place in 1944. 



Bank system 
flexible 



Decennial 
revision 



19. Q. — Is it correct that revisions take place every 

ten years? 

A. — Generally speaking that is so. 

20. Q. — You say that the banks compete for my 

business. In what ways do they compete? 

A. — Your account means earnings for your competition 
bank — every other bank would like to have 
it. If you are a borrower for personal or 
business reasons, banks vie with each other 
in matters of service and promptitude. If 
they are handling your business collections, 
they compete in skill, speed and efficiency. 
Competition is the life of trade and each 
bank endeavours to outdo the others in 
rendering service to you and to the coun- 
try. Of course, there could be no such 
competition under nationalization. 



Charter 
restrictions 



What banks 
can do 



Credit 



21. Q. — You say there are conditions and restric- 

tions in bank charters. Does that mean 
there are certain classes of business that 
banks are prohibited from doing? 
A.— Yes. 

22. Q.— What CAN they do? 

A. — Primarily the banks are organized to re- 
ceive as deposits the savings of millions of 
people from one end of Canada to the other 
and to make credit available to those who 
look to the banks for this assistance in 
their financing. 

23. Q. — Credit for what purposes? 

A. — Banks extend credit to producers, to busi- 
ness and to individuals and municipalities, 
corporations, institutions and Dominion 
and provincial governments for their 
legitimate needs. For instance, the farm 
cooperatives, the wheat pools and dairy 
pools use the banks' facilities — these and 
countless individuals. 



Small 
loans 



24. Q. — Do banks make small loans? 

A. — More than half of the total number of 
bank loans in Canada are for amounts of 
$500 or less. 

25. Q. — So the banks do not serve large interests 

alone? 

A. — Of course not. The answers to the last two 
questions and the thousands who borrow 
from the banks prove that. 



Prohibited 

business 



26. Q. — What kind of business are banks pro- 
hibited from doing? 

A. — A bank may not engage in trade. It cannot 
buy or lend against its own shares or those 
of any other chartered bank. It cannot 
lend initially on mortgages. It cannot let 
its name~appear n certain prospectuses. It 



8 



must not permit its staff to represent in- 
surance companies. There are heavy pen- 
alties provided in The Bank Act in case of 
violation. 

27. Q. — You say that banks cannot engage in trade. 

Does that mean that a bank does not 
initiate business activity? 

A. — Exactly. A bank cannot buy or sell goods 
or operate as a commission agent for 
goods, thus competing with commercial 
houses. The banks encourage and facilitate 
business activity but do not of themselves 
initiate it. A bank would not take a million 
dollars, for instance, put it into the hands 
of Mr. John Jones, and say in effect, "Mr. 
Jones, here is a million dollars, go and start 
a factory." The borrower always does, and 
always must, take the initiative, whether 
the borrower be a government, a corpor- 
ation or a person. Business activity or 
manufacturing ventures must be started 
by individuals or by groups of individuals 
banded together in companies. 

28. Q. — What is the main idea of these restrictive 

provisions you have mentioned? 

A. — Parliament seeks as far as possible to pro- 
tect the interests of depositors and to keep 
money from being tied up in undue quanti- 
ties of goods which may be subject to price 
fluctuations, or "frozen" in real estate. 



Borrower 

takes 
initiative 



Protection of 
depositors 



29. Q. — I have heard it said that bank loans cannot 
be obtained on the security of land free of 
encumbrance. Is that so? 

A. — The Bank Act expressly prohibits the 
banks from lending on the security of real 
estate. Banks cannot initially take mort- 
gages as security for loans, but that is not 
to say that an owner could not borrow on 
his credit standing alone, or on some other 
acceptable basis. 



No loans 
on land 



9 



30. Q. — What other controls safeguard the interests 

of depositor and borrower? 

safeguards A.— Every bank has to make returns to the 

government periodically and also to the 
Bank of Canada along the lines specified 
in The Bank Act or in other regulations. 
Certain of these returns are laid before 
Parliament itself and there are severe pen- 
alties provided for any errors in these re- 
turns. Each bank is subject also to the 
continuous scrutiny of two auditors elected 
by the shareholders and approved by the 
government. These auditors make an an- 
nual audit and their report is submitted to 
the shareholders. In addition there is an 
officer of the Department of Finance, the 
Inspector-General of Banks, who must in- 
spect each bank periodically. 

31. Q. — Do the banks comprise the whole of Can- 

ada's financial system? 

Banks only a. — Some people assume that the banks ARE 

one element r c 

in system the whole financial system. Of course they 

are not. They are only one element in 
Canada's financial system, an important 
element, it is true. 

32. Q. — Then, what really is Canada's financial 

system? 

Financial A. — The Bank of Canada, the chartered banks, 

system ' 

the Industrial Development Bank, the sav- 
ings banks, the insurance companies, the 
trust, mortgage and loan companies, the 
investment dealers and other financial 
organizations. The 10 chartered banks are 
the country's commercial banking system. 
Their work chiefly is to act as depositories, 
and to assist in keeping the wheels of pro- 
duction, industry and business moving — 
to furnish the credits that enable wages to 
be paid, goods to be transported and com- 
modities to be sold. 

10 



33. Q. — Roughly what are the several functions of 
the agencies other than the chartered 
banks? 

A. — The Bank of Canada, the government's 
central bank, is the instrument through 
which the nation's monetary policy, as 
determined by the people's elected repre- 
sentatives, is given effect. The insurance 
companies collect the premium savings of 
millions of policyholders and under certain 
conditions and restrictions invest them at 
interest in government and other securities 
and lend on mortgages. The lending is of 
longer term than bank lending. The in- 
vestment dealers deal in government and 
municipal bonds and in the securities of 
industry, business and other institutions. 
Venture capital is furnished largely by 
very large numbers of Canadian people 
who have savings and who want to invest 
in new developments — such as industrial 
and other enterprises, the mines across 
Canada, the oil fields of Alberta and else- 
where — in the hope of a return commen- 
surate with the risk involved. 



Functions 
of other 
agencies 



34. Q. — What is the function of the Industrial 
Development Bank? 

A. — Its purpose is "to ensure availability of 
credit to industrial enterprises which may 
reasonably be expected to prove successful 
if a high level of national income and em- 
ployment is maintained, by supplementing 
the activities of other lenders and by pro- 
viding capital assistance to industry with 
particular reference to the financing 
problems of small enterprises." That is 
the way it is stated in the preamble to the 
Industrial Development Bank Act, which 
created this addition to the nation's finan- 
cial system in 1944. In effect this means 
that the Industrial Development Bank 



Industrial 

Development 

Bank 



11 



kTn a g n er terms lends over a somewhat longer term than is 

customary with the chartered banks and 
the Industrial Development Bank is able to 
take certain types of security not legally 
open to the chartered banks. 

35. Q. — What special type of financing does each 

of these institutions do? 

types a ? f A. — The banks supply the short-term working 

financing capital, payroll accommodation, money for 

the purchase of materials, loans against 
goods in process of manufacture, and loans 
to farmers, lumbermen, fishermen, mar- 
keting agencies and the like. Long-term 
money for capital investment is furnished 
through the insurance companies, the in- 
vestment dealers, mortgage companies, 
trust and loan companies, the Industrial 
Development Bank and other long-term 
credit agencies. Money for ventures is 
furnished usually by the public which buys 
stocks; the stock exchanges furnish a 
means whereby holders of these shares 
may trade in them. 

36. Q. — What about the other financial organiza- 

tions you mentioned? 

A. — Provincial government savings offices and 
other savings banks take in savings and 
invest them in suitable securities. Caisses 
Populaires and Credit Unions are forms of 
cooperative organization to promote thrift 
and lend money in small sums to the mem- 
bers under certain conditions. 

37. Q. — You were speaking of the Bank of Canada. 

What is the purpose of the Bank of Canada? 

Bank^of ° f A. — You can find the best answer in the pre- 

canada amble to the Bank of Canada Act, which 

says that the central bank is established : 

"To regulate credit and currency in the 

best interests of the economic life of the 

12 



nation, to control and protect the ex- 
ternal value of the national monetary 
unit and to mitigate by its influence 
fluctuations in the general level of pro- 
duction, trade, prices and employment, 
so far as may be possible within the 
scope of monetary action, and generally 
to promote the economic and financial 
welfare of the Dominion." 

38. Q. — In seeking to give effect to those principles 

does the Bank of Canada have the co- 
operation of the chartered banks? 

At^ .-, -,, Co-operation 

. — Decidedly yes. of banks 

39. Q. — Can you give an example? 

A. — One such example is illustrated in the 
words of the Minister of Finance (Rt. Hon. 
J. L. Ilsley) who, on February 27, 1946, in 
an official statement said: 

"Following discussions between the gov- 
ernment, the Bank of Canada, and the 
chartered banks, the banks have agreed 
that their holdings of Dominion govern- 
ment domestic bonds (including guar- 
anteed issues) will not average more 
than 90 per cent of the amount of their 
Canadian savings deposits (i.e. their 
notice deposits other than balances of 
corporations). The banks have also 
agreed that their earnings on such 
Dominion government bonds held for in- 
vestment account should not exceed their 
operating costs on Canadian savings de- 
posits in the form of deposit interest 
and other expenses by more than a mod- 
erate profit margin for this type of 
banking business." 

The net effect of this is that on the pro- 
portion of savings deposits which the 
banks invest in government securities in 
pursuance of that agreement the rate of 

13 



earning is low. An official statement pub- 
lished in The Canada Gazette in 1949, 
covering bank earnings for 1948, shows 
that the net earnings on these Dominion 
government bonds related to the savings 
agreement was only three one-hundredths 
of one per cent, before income taxes. 

40. Q. — Are there any other recent instances of 
co-operation between the chartered banks 
and the Bank of Canada? 

A. — Yes. The banks cooperated early in 1948 
in efforts to avert certain potential infla- 
tionary tendencies in an unusual surge of 
borrowing from banks for capital invest- 
ment and inventory purposes during the 
reconversion of Canada's industry from a 
wartime to a peacetime footing. The gov- 
ernor of the Bank of Canada, testifying 
before the House of Commons Committee 
on Prices, on May 27, 1948, said: 

"There is one point I should like to men- 
tion in connection with the activities of 
the central bank and that is the extent 
to which we maintain touch with and 
have consultations with the commercial 
banks ; that has been a constant, periodic 
thing ever since the Bank of Canada 
started. Last year, about the middle of 
the year or slightly later, we did take 
occasion to express the view to the char- 
tered banks that a conservative attitude 
in regard to loans was desirable. We had 
in mind that the banks would want in 
their own interests and in the interest of 
their clients, to scrutinize the position of 
inventories and receivables rather care- 
fully and try to insure that excessive 
inventories were not built up. The banks, 
I am sure, had that in mind even before 
the specific talks we had on that subject 
on various occasions in 1947. 



14 



"Later on, in February, 1948, having in 
mind not only the scale of capital invest- 
ments during 1947 but also some indi- 
cation which it was then possible to get 
in regard to intentions for 1948, we did 
express the view to the banks that under 
existing conditions, when the rate of 
capital investment is pressing on rela- 
tively scarce supplies of manpower and 
materials, it was undesirable to finance 
capital expenditures through the expan- 
sion of bank credit. There again, I be- 
lieve, the views which we expressed 
coincided with and carried the judgment 
of the banking system." 



41. Q. — Now, getting back to ordinary bank lending 
— some people hold the idea that bank loans 
"create" deposits and that the banks are 
therefore able to create their own resources 
at will. Is that so? 



Loans 
"create" 
deposits 
theory 



A. — An effective answer was supplied to a com- 
mittee of Parliament by the governor of 
the Bank of Canada when he said : 



"I have always believed . . . that the 
people who discuss the 'creation of de- 
posits' as if it were a highly valuable 
privilege of the banks, think of bank 
deposits as an asset ; and they therefore 
believe that the banks can create assets 
for themselves. That would indeed be a 
valuable privilege. In fact, however, while 
a bank deposit is an asset for the indi- 
vidual owner, it is a liability so far as 
the bank is concerned. It might save 
confusion then if we talked of banks 
creating liabilities — a thing any one of 
us can do if we have a reputation good 
enough to persuade someone to sell us 
goods on credit." 



Mr. Towers' 
statement 



Every deposit 
a liability 



15 



and also: 
"I have always felt that there was an 
absolutely fatal misunderstanding in re- 
gard to the banking system as a whole, 
and that fatal misunderstanding arises 
from the thought that deposits are 
assets and that notes are assets. Now, 
so long as that thought is even in the 
background of people's minds, any dis- 
cussion of banking gets on a topsy-turvy 
basis, because they are liabilities." 

42. Q. — Then clearly a bank's deposits are its 

liabilities? 

A. — That is so ; they are debts of the bank owed 
to the bank's customers who leave their 
funds on deposit. They are also expensive 
from the standpoint of the bank, since they 
involve important accounting and servicing 
costs and, in the case of savings deposits, 
interest must be paid on them. 

43. Q. — The other side of the story, I suppose, is 

that these same deposits are the public's 
cash assets? 

A. — Exactly so, and these deposits constitute 
the greater part of Canada's money supply. 

44. Q. — Is there anything further you can tell me 

about loans "creating deposits"? 

Itetlmlnt A - — Yes - Tfte governor of the Bank of Canada, 

by Mr. Towere before the Banking and Commerce Com- 

mittee of the House of Commons, an March 
31, 1939, said: 
"People have been assuming that when 
a bank creates a deposit that it is an 
asset of the bank. On the contrary the 
bank goes through the painful process 
of creating a liability, which any of us 
can do within our power . . . Unfortu- 
nately you cannot use your liability to 
buy anything. The deposit you have 
with the bank is its liability. It cannot 
use its liabilities to buy something." 

16 



45. Q. — Again apropos of the idea that a loan 
creates a deposit, the late Rt. Hon. Regin- 
ald McKenna, former Chancellor of the 
Exchequer in England and Chairman of 
the Midland Bank, is often quoted as 
authority for one of the oft-misconstrued 
statements to the effect that banks create 
money out of nothing. Have you any 
answer to this? 

A. — Yes, and from one of the late Mr. Mc- 
Kenna's own works, "What is Banking?" 
in which he said : "It is clear from what has 
been said so far that, while any one bank 
may in the course of the day's transactions 
gain deposits and cash from, or lose de- 
posits and cash to, any other bank, the 
total deposits of all the banks taken to- 
gether remain unchanged so long as there 
is no change in the cash ratio and no change 
in the total of bank cash. The proposition 
is as simple as the purely arithmetical 
statement that 10 times one is always 10. 
It would be wasting time to press the 
point, were it not for the fact that quite a 
number of monetary theories have been 
based on the supposed unrestricted power 
of the banks to increase deposits at will. 
But, in truth, variations in the quantity of 
money depend upon variations in the 
quantity of bank cash, and over bank cash 
the banks themselves have no power." 



Statement 
by Rt. Hon. 
Reginald 
McKenna 



46. Q.— What about the old story that banks 
create deposits with a fountain pen? 

A. — Mr. Towers was questioned about that, too, 
and said in reply: 
"I do not think that the fountain pen 
reference is a very satisfactory one. 
After all, we are dealing with a serious 
subject on which I do not suppose any- 
one wants people to obtain wrong im- 
pressions. I suppose, with due respect to 



"Fountain 
Pen" theory 



Mr. Towers' 
reply 



17 



the King's Printer, I could refer to all 
the laws of this country as pen and ink 
laws, but if I went out and tried to break 
them and said in court, 'It was only a pen 
and ink matter/ I would not get very far 
with the judge. These are real trans- 
actions which take place in banks. These 
are serious liabilities which they as- 



47. Q. — Could you summarize all that? 

summary A.—Yes. When banks make loans that give rise 

to deposits, they merely create liabilities 
which they must meet on demand and 
which therefore must be secured by credit- 
worthy assets. 

48. Q. — About this regulation of credit and cur- 

rency — what then becomes of the doctrine 
we so often hear from uninformed critics 
of the banking system — that the money 
supply and the volume of available credit 
are in the sole control of the chartered 
banks? 

noTcorftroi ^. — The banks have no such sole control. The 

money supply quantity of money in the country and the 

volume of available credit are matters 
affected by a number of things, including 
national monetary and fiscal policy given 
effect through the Bank of Canada which 
is the nation's government-owned central 
bank; and the willingness and ability of 
borrowers to borrow for their enterprises. 

49. Q. — Does not all you have told me put an end 

to any idea that the chartered banks create 
booms and depressions? 

dep^ssioSs A - — tt certainly does. The chartered banks 

simply follow the rules of a modern, man- 
aged monetary system. 

18 



50. Q. — Would it be correct to say that Canadian 

war finance which affected the volume of 
money involved some inflation? 

A. — Canada's war effort was financed to the 
greatest possible extent by taxation. After 
that, any deficiency between government's 
revenues from taxation and the amount 
called for by the needs of war was supplied 
as far as possible byjselling Victo ry Bond s 
to the Canadian people — in effect borrow- 
ing from real savings which the people took 
out of the banks to buy Victory Bonds or 
which, by payroll deductions, they re- 
linquished out of current income instead 
of spending on goods. All this was anti- 
inflationary, and Canada's handling of 
her wartime financial problems will stand 
comparison with any other nation in the 
world. Nevertheless, a moderate gap still 
remained, the filling of which could only 
be done by crea ting new money , sometimes 
referred to as a degree of inflation. Gen- 
erally speaking, this gap was bridged by 
selling to the banks" short-term govern- 
ment issues bearing very low interest rates. 
A principal instrument in this category 
was known as "Certificate of Deposit," a 
six months' obligation sold to banks only; 
it earned only % of one per cent for the 
banks. Most of the Certificates of Deposit 
issued to bridge this gap have since been 
retired. 

51. Q. — Suggestions are sometimes heard that the 

federal government should do all its financ- 
ing through the Bank of Canada, either by 
printing and issuing Bank of Canada notes 
or borrowing from the Bank of Canada. 
What have you to say to that? 
A. — The short answer is that borrowing from 
the Bank of Canada is far more inflation- 
ary than borrowing from the chartered 
banks. 



War financing 



Government 
financing- 
through Bank 
of Canada 



19 



52. Q.— Why is that? 

A. — When the government borrows from the 
chartered banks, new purchasing power is 
created but only to the extent of the loan. 
Borrowing from the Bank of Canada im- 
poses no such limitations. 



Inflation 
would result 



53. Q. — So that those who would have the nation 
meet its expenses simply by printing money 
and paying it out — 

A. — Are asking for runaway inflation, whether 
they know it or not. Inflation would be the 
inevitable, bitter consequence. 



Examples of 

runaway 

inflation 



54. Q. — Can you give examples of runaway infla- 
tion? 

A. — Yes — the total wiping out of money values 
in the runaway inflation in Germany after 
the first Great War; the complete destruc- 
tion of all values in Russia after the revo- 
lution, and the more recent examples in 
Greece and China. 



Losers in 
inflation 



55. Q. — Who loses in a runaway inflation? 

A. — The first losers are the wage-earners and 
people on small, fixed incomes, such as pen- 
sions, who find the purchasing value of 
their money practically wiped out. The 
people who are hit first and worst are 
those who can least afford it. 



Few winners 
in inflation 



56. Q. — Can anybody win in an inflation? 

A. — Very few who can switch their investments 
into real property and real goods can 
benefit out of the general ruin of the rest 
of us. Runaway inflation is the most dia- 
bolical cruelty that can be inflicted upon a 
people. 

57. Q. — Some so-called reformers have repeatedly 

set afloat the idea that banks not only 
create deposits with a fountain pen but 



20 



then proceed to loan these deposits over 
and over. Is this a fallacy? 

A. — Decidedly it is a fallacy. As we have al- 
ready shown, deposits are liabilities, and 
you cannot lend liabilities. A bank cannot 
lend_ J as__muclL_as it^MsJnJlej^osils. The 
governor of the Bank of Canada, testifying 
before the Banking and Commerce Com- 
mittee of the House of Commons during 
the revision of The Bank Act, on May 23, 
1944, covered the subject thus: 

"The banks' . . . loans and investments 
will never be as large as the amount de- 
posited with them because they have to 
keep a certain percentage of their de- 
posits in the form of cash. That is really 
the famous 'ratio' we hear about, but I 
think there is some feeling that in fact 
bank loans and investments exceed their 
deposits, that they lend money they have 
not got. Of course, that is not the case 
and it is a misconception which it would 
be very helpful to remove." 



Cannot lend 
liabilities 



Loans and 
investments 
less than 
deposits 



Mr. Towers' 
statement 



58. Q. — Nationalization of banks is a primary 
socialist objective. Presumably its advo- 
cates must believe it would produce certain 
benefits. What would socialists gain by 
nationalizing the banks and thus creating 
a state monopoly? 

A. — They wish to use state banking as a mon- 
opoly device to force business men and 
everybody else to follow the socialist dic- 
tates and policies. All you have to do is 
look up the socialist platform in which the 
socialists declare: 

"Control of finance is the first step to 
the control of the whole economy." 
They also say in their socialist literature: 
"A nationalized banking system would be 
useless taken by itself." 



Socialists 
and the banks 



21 



59. Q. — Just how should that be interpreted? 

banks^oniT A. — It can only mean that what is really pro- 

first 8tep posed is not merely taking over the banks 

— not by any means. Taking over the 
banks is only the first step — to use the 
socialists' own words. They say, too, that 
unless they can socialize the whole econ- 
omy, the banks "might as well be left 
alone." 

60. Q. — But taking over the banks would be a very 

important "first step" toward socialism, 
would it not? 

Sstry 11 A - — Decidedly. Once the banks were firmly 

under socialistic control, credit policy could 
be used to affect, direct, or even to stop 
the operations of any industry. 

61. Q. — That is what you say. But do the advo- 

cates of nationalized banking really have 
such sweeping changes in mind? 

A. — Definitely they do. Here is a quotation 
from "Social Planning for Canada," page 
250: "The first necessity of a socialist 
program is the deliberate control of our 
financial machinery . . ." 
Here is another quotation from the same 
book, page 306, which shows the sweeping 
nature of the changes that are planned to 
be brought about by nationalization: 

"The banking system as a whole will 
discriminate between areas and indus- 
tries in conformity with the national 
plan. Thus, if it were felt that mixed 
farming should be encouraged in certain 
localities — possibly at the expense of the 
newsprint industry — the banking system 
would act accordingly." 

62. Q. — And what is the real effect of all this? 

Total A. — To turn Canada into a totally regimented 

regimentation Socialistic State. 

22 



63. Q. — If the banks were nationalized, would there 

still be competition? 

A. — Of course not. Ten chartered banks com- 
peting with each other are the very op- 
posite of a state monopoly. They are not a 
monopoly at all. Roll them all into one by 
nationalization and you have state mon- 
opoly. Who and what would it compete 
with? 

64. Q. — Right now suppose I apply to one of the 10 

chartered banks for a loan and am refused? 

A. — If you feel that your proposition has not 
received the consideration it deserves you 
are free to apply to any one of nine other 
competing chartered banks, and that bank 
will, of course, look into the matter quite 
independently. All of them are anxious to 
obtain good loaning business. 

65. Q. — Could I do this under nationalization? 

A. — If there were only one nationalized bank, 
where could you go? 

66. Q. — Under present conditions also, if I have 

any reason to complain of the service I 
receive in any respect from the bank of 
of my choice . . . 

A. — You can always take your business else- 
where and no bank likes to lose business to 
a competitor. 

67. Q. — But under nationalization . . .? 

A.— If, as a borrower or as a customer in any 
other capacity, you were dissatisfied with 
your treatment at the state bank, where 
else could you go? There would be only one 
bank — the nationalized bank, run as a gov- 
ernment monopoly. Your bank manager 
would be a state official. His decisions 
would be determined by socialist govern- 
ment policy. If you did not like it, there 
would be nothing you could do about it. 



No competi- 
tion if banks 
nationalized 



Choice of 
ten banks 



One bank 
only I 



23 



68. Q. — Under such conditions could I be sure that 

my banking transactions would remain of 
the same strictly confidential nature they 
are now or would be handled with the same 
speed and efficiency? 
A. — What do you think? 

69. Q. — Can you give any example as to what this 

direction of credit would mean to the 
farmer? 

^ f rm C er on ^' — ^he situation is expressed by the socialist 

leaders in their book "Make This Your 
Canada" (page 162) : 

"Every article produced will be used to 
answer the need of the people of Canada 
or some other part of the world. No one 
except the people as a whole will make a 
profit out of it, for should it be decided 
that tobacco, for example, should be sold 
at a profit, the surplus will be available 
for social services or other public ex- 
penditures." 

70. Q. — Did you say "tobacco for example"? 

Producer A. — Yes, that is the exact quotation. In the 

Iw 1 in°lrofit place of tobacco you could substitute wheat, 

meat, cattle, butter, oats, barley, hogs, 
apples, fish, lumber. The producer gets no 
break at all. After taking his products 
away from him at a price determined by 
the socialist planners, such a system could 
sell the goods at a profit and the man who 
produced the goods would not share in that 
profit at all, if the planners wanted to use 
the money for other purposes. 

71. Q. — Can anybody consider it wise or safe to 

make such sweeping changes as nation- 
alization of banks would entail? Is not the 
business of looking after other people's 
money a rather delicate proposition? 
Lord A. — Lord Macmillan, as chairman of the Royal 

SSSlnf '' Commission on Banking in Canada, which 

24 



gave rise to the formation of the Bank of 
Canada, answered that question years be- 
fore you asked it. Writing as early as 1933 
of experiments in the realm of banking he 
said: " Unfortunately there is no laboratory 
in which such experiments can first be 
tried. They can only be tried upon the 
lives and fortunes of human beings and if 
they fail, they may be productive of untold 
misery." He added, "The mechanism of 
finance is a delicate one; the confidence 
upon which it is based is a slow growth, 
but it may be destroyed overnight — and 
those to whom is entrusted the responsi- 
bility for the welfare of the people must 
proceed with caution in the adoption of 
changes." 

72. Q. — If, after having tried it, the people were to 
decide later that they did not like state 
monopoly of banking after bringing it 
about, could they turn back to our present 
system? 
A. — It is impossible to unscramble eggs. The 
present competitive system is the result of 
generations of patient and careful building. 
If destroyed by political action, can it be 
expected that brains and capital will again 
take the risk of having a lifetime of work 
and savings swept away? 



Cannot 

unscramble 

eggs 



73. Q. — What are bank cash reserves? 

A. — Every bank retains in cash (that is de- 
posits in the Bank of Canada or notes of 
the Bank of Canada) an amount equivalent 
tojibout 10 per cent of its deposit liabili- 
ties to the public. 

74. Q._Why 10 per cent? 

A. — The governor of the Bank of Canada gave a 
very practical answer to this in 1939 which 
is as good today as it was then. It is as 
follows : 



Cash 

reserves 



10 per cent 
result of 
experience 



25 



Statement"' "If someone were to ask me why the 

chartered banks try to maintain a 10 
per cent cash reserve instead of five per 
cent or 15 per cent or some other figure, 
I could only reply that the working ex- 
perience of many years has indicated 
that 10 per cent is a reasonable ratio 
which provides sufficient cash to cover 
any immediate demands but is not so 
high as to constitute an unnecessary 
burden in the form of non-earning 
assets." 

75. Q. — You have mentioned that the first concern 

of a bank is the safeguarding of its de- 
positors' funds. How is that done? 

S?IiuMd k8 ^' — ^ bank must so conduct itself as to be pre- 

depositors* pared to pay any depositor all or any part 

of his deposit. The Bank Act provides cer- 
tain fundamental safeguards and the legal 
basis of banking practice. First of all The 
Bank Act requires banks to keep f ive jper 
cent of the total amount of their deposits 
in the form of Bank of Canada bills or 
deposits in the Bank of Canada. Notwith- 
standing the fact that the law requires the 
banks to keep only five per cent of their 
deposits in this cash form, in actual prac- 
tice they keep about 10 per cent of their 
"deposits in cash — the cash reserves we 
have previously described. 

76. Q. — Please continue to tell how the banks safe- 

guard the depositors' funds. 

A. — After keeping about 10 per cent of their 
deposits in cash, twice the amount required 
by statute, earning nothing at all, a further 
percentage of depositors' funds is kept in 
short-term investments upon which the 
yield is low because the securities in which 
these funds are placed will mature at short 
date. They are readily convertible into 
cash. After that comes investment in 

26 



bonds of medium-term, and after that the 
well-understood business of lending to in- 
dividuals, businesses, industries, muni- 
cipalities, school districts and governments. 
You will note that a high degree of liquidity 
is provided as a safeguard for deposits. The 
normal lending risks of ordinary commer- 
cial banking are undertaken against this 
background. 

77. Q. — That is perhaps the basis of the implication 

sometimes heard that banks prefer to in- 
vest in government bonds rather than to 
make commercial loans? 

A. — That may be the basis, but the implication Loans 
is wholly untrue. A bank earns anywhere by banks 
from a mere fraction of one per cent on 
readily convertible government securities 
up to something under 3 per cent on longer- 
term government bonds. The average yield 
on a bank's portfolio of government securi- 
ties is about 2 per cent. On the other hand 
the yield from loans because of the greater 
element of risk involved is higher than the 
return from government securities. Nat- 
urally the banks would prefer to make the 
more profitable commercial loans rather 
than to invest in government bonds which 
yield very much less. 

78. Q. — Earlier, you mentioned safety deposit 

boxes. What are their uses? 

A. — To store bonds, stocks, insurance policies, |J f jJf t 
documents and valuables such as jewellery. boxS 1 

79. Q. — Does the bank manager know the contents 

of a safety deposit box? 

A. — No. Nor does any member of his staff. 

80. Q. — Should a safety deposit box be used to hold 

cash? 

A. — No. Cash should be deposited in a bank 
account. 

27 



81. Q. — How can I protect myself from loss in the 

case of my safety deposit box? 

A. — Your best way of protecting yourself from 
loss is (a) deposit your cash in your bank 
account; (b) have your bonds fully regis- 
tered, or at least registered as to principal ; 
and (c) keep a record of everything in 
your box — particularly the serial numbers 
of your bonds. 

82. Q. — Are such boxes insurable? 

A. — Many people who hold safety deposit boxes 
take the precaution of insuring the con- 
tents. There are insurance companies that 
make a regular business of this type of risk. 
As a bank has no knowledge of what is in 
each box how could it insure the contents ? 



Safekeeping 
of securities 



41,616 
employees 



$87 millions 
in salaries 
and wages 



$19,491,000 
in taxes 



83. Q. — Is there any other type of safekeeping? 

A. — Yes, your bank provides a safekeeping 
service for securities and other valuable 
documents. This service includes the clip- 
ping of interest coupons as they mature, 
and crediting the proceeds to your account. 

84. Q. — To turn to another subject — are the banks 

large employers of labor? 

A. — Yes. Their employees at October 31, 1948, 
from coast to coast, numbered 41,616, 50 
per cent of them women. The pre-war per- 
centage of women on bank staffs was only 
21.7 per cent. 

85. Q. — What is the total payroll of the banks? 

A. — Banks paid in wages and salaries to their 
staffs $87,242,000 during 1948. The figure 
in 1939 was $39,000,000. In addition to this 
payroll, the banks make large contributions 
to pension funds to take care of their em- 
ployees in their old age. 

86. Q. — Do banks pay taxes? 

A. — In 1948 they provided for Dominion, 
provincial, municipal and other taxes 



28 



$19,491,000. In 1939, pre-war, they paid 
$9,400,000. The increase is 107.35 per cent. 

87. Q. — Would they pay taxes if nationalized? 

A. — No. Government corporations are exempt. 

88. Q. — What about municipal taxes — government 

properties being exempt, what amount of 
money would villages, towns, cities and 
rural municipalities lose? 

A.— The banks paid in 1948 $4,514,321.81 in 
taxes to municipalities. A government 
monopoly would pay nothing. The muni- 
cipalities would lose in yearly tax-revenue 
(based on 1948) $4,514,321.81. 

89. Q. — When you add payroll, taxes and interest 

to depositors all together for a year, then 
what is the figure? 

A.— More than $152,000,000. 

90. Q. — You mean that before the shareholders re- 

ceive any dividends at all the banks must 
be prepared to pay to employees, taxing 
bodies and depositors more than $152,- 
000,000? 
A. — Exactly so — to put it perhaps more simply, 
the banks pay out about $10.20 in wages, 
taxes and interest for every dollar they 
pay to the shareholders. 



No taxation 
if nationalized 



Loss to 
municipalities 



Costs money 
to run banks 



Shareholder 
last to 
benefit 



91. Q. — And they have other expenses, too, of 

course? 

A. — Yes — all of the ordinary current expenses other 
of other concerns doing business, such as ex P en8e8 
stationery, printing, light, water, fuel, 
power, rent and the like. These expenses 
amount to a very large sum. 

92. Q. — What is the round figure banks pay out in 

dividends as contrasted with the amount 
they pay out in large cost items such as you 
have described? 



29 



nlsA A.— In 1948 $14,895,000— a return of only 

$4.31 on each $100 the shareholder has in 
the business. 

93. Q. — Criticism of so-called "interlocking direc- 

torates" is offered from time to time — that 
is to say, that directors of large concerns 
are also directors of banks, and vice versa. 
What is the answer? 

d?rectorate8 ff ^. — Business success can be taken as evidence 

of business capacity and judgment. Busi- 
ness success is not disreputable — at any 
rate not yet, in a free country. So it is that 
the counsel and judgment of competent 
men of affairs is in great demand. They 
are called upon by wise management and by 
shareholders to give a bank the benefit of 
their business experience. No bank direc- 
tor is a director of any more than one bank. 
There is no overlapping of that kind. Some- 
times, too, a capable banker is sought as a 
director on some industrial board. And 
bankers or bank directors are but a min- 
ority on such boards. 

94. Q. — Does "interlocking" tend toward channel- 

ling credit to the companies or interests 
represented by a director? 

director*? A. — Very definitely not. A high ethical code 

governs, and is paralleled by a provision in 
The Bank Act which prohibits a bank direc- 
tor from being present when a credit to a 
company in which he is interested is under 
consideration by the board. Furthermore, 
returns have to be made to the Minister of 
Finance, and these are published officially, 
showing for each bank the aggregate 
amount of loans made to directors and 
firms of which they are partners, and loans 
for which they are guarantors. Thus the 
director is actually under a measure of 
handicap as compared with other bor- 
rowers. 



95. Q. — Do such loans form any sizeable percentage 

of the banks' total loans? 

A. — No. The amounts are so small relatively as 
to make quite absurd any suggestion of 
directors steering credit to themselves. The 
published returns of the Minister of Finance 
— and here is a typical one (September 30, 
1948) — show that out of total loans aggre- 
gating $1,930,000,000, loans to directors or 
firms in which they are partners or loans 
for which they are guarantors, amounted 
to only $9,830,000. That is about the usual 
ratio — only about one-two-hundredth of the 
total loans made by the banks. 

96. Q. — What are the employment conditions in the 

chartered banks? 

A. — "Social security" is a comparatively new 
phrase in the vocabulary of politics, but it 
is no new thing to the employees of the 
chartered banks. Socialism is not a pre- 
requisite of social security. Free enterprise 
can provide it, and does. When a junior 
joins a bank he is given a reasonable time 
to show his aptitude. If he is then found 
to have no aptitude for banking, he is told 
so and is given a reasonable time to find 
other employment. Banks provide a good 
deal of money, in addition to the contribu- 
tions of the staffs themselves, to remove 
from employees: 

(1) Fear of unemployment. 

(2) Unemployment through sickness 
and disability. 

(3) A penniless old age. 
Year-round employment, vacations with 
pay, payment during absence through ill- 
ness, contributory old age and disability 
pensions, coupled with good conditions of 
apprenticeship, opportunity for advance- 
ment and a justified sense of permanency, 
combine to make bank work congenial to 
the employee. 



Returns to 
Minister 



"Social 
security" 
for bank 
employees 



31 



97. Q. — In addition to the banks' and their em- 

ployees' own pension plans, do they also 
contribute to the federal government's un- 
employment insurance scheme? 

A. — Decidedly yes. However, there never has 
been a pool of unemployed bankers. The 
number actually released from employment 
during any year is remarkably small. 
Abrupt dismissals, except for cause, are 
avoided, the bank bearing the expense of 
continuing the employment for a time in 
all such cases, and often paying a gratuity 
to the employee being released. 

98. Q. — What did the banks do in the case of em- 

ployees who enlisted in the war? 

en 4 i? s 3 tments ^" — ^he num b er of bank employees in the 

armed services was 8,403. During the time 
they were away, their seniority, promo- 
tions and salary increases and pension 
rights were maintained and protected just 
as if they had never left. The bank em- 
ployee demobilized after the war was taken 
back at the salary and rank which would 
have been reached if he had not joined the 
services. This applied to both men and 
women. 

99. Q. — In some respects bank earnings are limited 

or restricted, but your costs go on? 

limited, A. — Yes. You have been told about wage costs, 

costs go on taxes and interest on deposits, and about 

some of the other costs. In addition, banks 
contribute heavily to pension funds and to 
group insurance and to unemployment in- 
surance for their employees. Depreciation 
on bank buildings takes quite a large sum 
each year and banks must also provide for 
"bad and doubtful debts." These costs are 
regardless of limitations on classes of bank 
earnings that we have mentioned. 

100. Q. — Roughly how many customers do the banks 
serve? 



A.— As of 1948 there were 7,551,058 individual 
deposit accounts in the 10 chartered banks 
put together. 6,605,952 of these were 
individual savings accounts, and the rest 
current accounts. This compares with the 
total of 4,846,016 deposit accounts in 1939. 
In pre-war 1939, Canadian deposits of all 
kinds amounted to $2,850 millions and in 
1948 to $6,842 millions. 



7,551,058 

deposit 

accounts 



$6,842 millions 
deposits 



101. Q. — Then you are serving more people than ever 
before? 

A. — Yes, that is because the war brought more 
people into the banks. We have millions 
more customers than before the war. More 
than 3,000,000 men and women obtained 
delivery from their banks of the Victory 
Bonds they bought. Many lodged them 
with us for safekeeping. We cut their 
coupons and credit the proceeds to what in 
many cases are new savings accounts, and 
these people have become regular custom- 
ers. Pay cheques for the armed forces and 
dependents' allowance cheques, which we 
negotiated without charge, brought many 
more people into friendly banking prem- 
ises. Family allowance cheques brought 
many more women into the banks. We cash 
these and all official cheques without 
charge. More people are passing to and 
fro, in and out of the banks daily than ever 
in the history of banking. The people are 
coming to know better the banks and the 
services they render. 



More 
customers 
since war 



102. Q. — What were the main changes effected in 
The Bank Act as a result of the 1944 re- 
vision by Parliament? 

A. — The revisions were extensive. They were f 9 h 4 a 4 nges . in 
made primarily to give the Canadian people 
a broader banking service. Notable among 
the revisions were : 



Interest 
rate reduced 



Note issue 
terminated 



Loans under 
section 88 



Unclaimed 
balances 



Par value 
now $10 



Return of 
earnings 
and expenses 



General 
contingent 
or loss 
reserves 



(1) The maximum legal rate of interest 
or discount was reduced from seven 
per cent to six per cent. 

L (2) After 1st January, 1945, the char- 
tered banks could not reissue any of 
their outstanding notes and 30 days 
after 1st January, 1950, each bank 
is to pay the Bank of Canada a sum 
equal to the amount of its Canadian 
notes still outstanding at that date. 
This will complete the passing of the 
right of issue to the Bank of Canada 
exclusively. 

(3) Simplifications were made in section 
88 of the Act, permitting loans to be 
made on the security of goods and 
merchandise in the possession of the 
customer, and to embrace security 
for intermediate farm loans to be 
made under The Farm Improvement 
Loans Act, 1944. It was also pro- 
vided that in certain specified cases 
of longer-term loans under The 
Farm Improvement Loans Act mort- 
gage security could be given. 

(4) Unclaimed balances, after accounts 
have been inactive for 10 years, to 
be transferred to the Bank of Can- 
ada which is to maintain the lia- 
bility to the depositor or his heirs. 

(5) Bank shares which had a statutory 
par value of $100 to be divided into 
10 shares each with a statutory par 
value of $10. 

(6) The Minister of Finance to place be- 
fore Parliament annually a state- 
ment of operating earnings and ex- 
penses and other information re- 
garding the 10 chartered banks. 

(7) The Minister of Finance to report to 
the Minister of National Revenue 



34 



for taxation purposes any conting- 
ent or general loss reserves which 
in any bank seem to him to be ex- 
cessive. 

103. Q. — Did the revision improve the farmer's bor- 
rowing position? 

A. — Certainly. Parliament which passed the Farm 

revised Bank Act also passed collateral i2ans V AS nt 
legislation known as The Farm Improve- 
ment Loans Act, which operates through 
the chartered banks. It is another instance 
of chartered banks' cooperation with the 
government, effecting a longer-term lend- 
ing service for a wider range of farm pur- 
poses. The Act enabled farmers to provide 
security not previously sanctioned by The 
Bank Act and thus enabled the banks to 
make longer term loans. In addition the 
government provided a marginal guaran- 
tee. This legislation made it possible for 
any farmer or farm tenant engaged in gen- 
eral tillage of soil, or raising livestock, or 
engaged in dairying, or horticulture, to 
take advantage of the wider service. A 
farmer may borrow up to $3,000, at a maxi- 
mum interest cost of five per cent simple 
interest per year, and for certain types of 
loans a maximum maturity of 10 years is 
permitted. The farmer may use the money 
to: 

(1) purchase agricultural implements 
or livestock, including fur-bearing 
animals ; 

(2) purchase or instal agricultural 
equipment or a farm electric system ; 

(3) erect fences or construct drainage; 

(4) construct, add to, alter or repair 
farm buildings or structures (in- 
cluding farm houses) ; 

(5) instal sewerage systems, clear and 
break land. 

35 



104. Q. — The banks did great and substantial serv- 
ices during the war. They showed them- 
selves flexible enough to meet every war- 
time need of the nation. What about the 
period of reconversion and peace? 

Banks roie in A. — The banks proved equally flexible in serv- 

reconversion . . , , . , ■. -, , 

and peace mg the nation s demands in post-war re- 

conversion and afterwards. They are 
thoroughly alive to the significance and 
importance of their present and future role 
as a vital factor in the economy. The com- 
mercial banking system has been a leading 
factor among those that have helped place 
the Canadian standard of living and way of 
life among the best in the post-war world. 
Canadians have confidence in their banks. 
Five times in recent memory the banks 
have been put to the acid test : the crash of 
world markets in 1929 ; Britain abandoning 
the gold standard in 1931; the closing of 
every bank in the United States and the 
"bank holiday" of 1933 while Canadian 
banks carried on unmoved ; the outbreak of 
war in 1939 ; and reconstruction and recon- 
version following 1945. During all these 
tests no Canadian has had to fear for the 
loss of a single dollar of his bank deposit. 
The system has proved sound and safe 
under every test. 



A FINAL WORD 

Viscount Snowden, Britain's famous socialist 
Chancellor of the Exchequer, wrote in 1935 : 

"So long as industry is carried on by private en- 
terprise, the banks must be free from political con- 
trol so that they can give credit impartially on* the 
merits of every application. If there were only one 
bank, traders would be at its mercy whereas now 
competition among a number of joint stock banks 
gives the depositors and borrowers a choice and a 
greater likelihood that their desires will be gratified." 

36 



INDEX 

Question 

Audit, shareholders' 30 

Bank, chartered, definition of 1 

Bank Act 17-19 

revisions 18-19, 102-3 

Bank manager state official under nationalization 67 

Bank of Canada: 

cooperation of chartered banks 38-40 

functions in financial system 33, 37 

government financing 5 1 

returns to 30 

Banks, chartered: 

business of 2, 22-2 J, 27 

choice between 10 banks 64, 66 

cooperation with Bank of Canada 3 8-40 

costs of operation 89-91, 99 

custodian of deposits 1 5 

deposits, number of 100 

directors 14 

dividends 9, 92 

functions in financial system 32 

management 13-14 

names 4 

note issue terminated 102 (2) 

number of 3 

one element only in financial system 3 1 

ownership 5-7 

profits 9 

prohibited business 21, 26-29 

secrecy re customers' business 16 

taxes 86-8 8 

tests of safety and stability 104 

Bonds, Dominion government, agreement re holdings 39 

Booms and depressions not created by banks 49 

Borrower takes initiative, not banks 27 

Business of banking: 2, 22-25, 27 

loans preferable to investments 77 

prohibited business 21, 26-29 

reasons for restrictions 2 8 

Cash reserves 57, 73-75 

Competition among banks 1, 20, 63-64, 66 

Cooperation between banks and Bank of Canada 38-40 

Costs of operation 89-91, 99 

Credit: 

control of, factors governing 48 

expansion, cooperation of banks with Bank of Canada 40 

purposes 23 

volume not controlled by banks 48 

Current deposit accounts, number of 100 

Custodians of deposits, banks' role 15 

Customers, increase since beginning of war 101 

Decennial revision of Bank Act 18-19 

Depositors, protection of 28, 30, 75-76 

Deposits: 

amount of 100 

cash ratio 57 

liabilities of banks 41-42, 44 

37 



Page 


10 




3 




7 




7, 


33-35 


23 




13, 


14 


11, 


12 


19 




10 




3, ! 


i, 9 


23 




13, 


14 


29, 


32 


6 




32, 


33 


6 




5, 


29, 30 


10 




6 




4 




33, 


34 


3 




10 




4 




5 




8, 


9 


6 




28, 


29 


36 




13 




18 




9 




3, 


8, 9 


27 




8, 


9 


9 




20, 


25, 26 


3, 


7, 23 


13, 


14 


29, 


32 


18 




14 




8 




18 




32 




6 




33 




7 




9, 


10, 26 


32 




20 




15, 


16 



INDEX Continued 

Question Page 

number of 100 32 

safeguards 28, 30, 75-76 9, 10, 26 

Deposits "created" by loans theory: 

McRenna, Rt. Hon. Reginald, statement by 45 17 

summary 47 18 

Towers, G. F., statements by 41, 44 15, 16 

Depressions and booms not created by banks 49 18 

Directors 14 6 

election of 14 6 

loans to 94-95 30,31 

Directorates, interlocking 93-94 30 

Dividends: 

amount 92 29 

relation to operating costs 90, 92 29 

shareholders' investment 9 5 

Dominion government taxation of banks 86-87 28-29 

Earnings: 

commercial loans 77 27 

comparison with costs 89 29 

government securities 39, 77 13, 27 

Earnings and expenses, annual return 102(6) 33, 34 

Farm Improvement Loans Act 102(3), 103 33, 34, 35 

Farmer: 

benefit of Farm Improvement Loans Act 103 3 5 

effect of nationalization on 69-70 24 

Financial system: 

agencies other than banks, functions of 33-36 11-12 

Bank of Canada functions 33, 37 11, 12 

chartered banks' functions 32, 3 5 10, 12 

Industrial Development Bank 34, 3 5 11, 12 

type of financing by various agencies 3 5 12 

Government financing: 

borrowing from Bank of Canada 51 19 

chartered banks 52 20 

Ilsley, Rt. Hon. J. L., statement re banks' holdings 

of Dominion government bonds 3 9 13 

Increase in customers since war 101 3 3 

Industrial Development Bank 34-3 5 11, 12 

Inflation: 

examples 54 20 

government financing through Bank of Canada 51 19 

war financing 50 19 

Inspector General of Banks 30 10 

Interest rates, reduction 102 (1) 34 

Interlocking directorates 93-94 3 

Investment of shareholders 8-12 5, 6 

Liquidity of deposits 76 26 

Loans: 

directors and directors' companies 94-95 30,31 

preferable to investments 77 27 

refusal by state bank final 6 5 23 

section 88 changes, revision 1944 102(3) 34 

small loans 24-2 5 8 

ten banks available to applicants 64 23 

38 



INDEX — Continued 

Question 
Loans and investments less than deposits: 

statement by G. F. Towers 57 

Loans "create" deposits theory: 

deposits re-loaned frequently, fallacy 57 

McKenna, Rt. Hon. Reginald, statement by 45 

Towers, G. F., statements by 41, 44 

Management of banks 13-14 

Macmillan, Lord 

statement re monetary experiments 71 

Monetary policy function of Bank of Canada 3 3, 37 

Money supply: 

banks do not control 48 

factors governing control 48 

increase by war financing 50 

Mortgages forbidden as security for new loans 29 

Municipal taxation of banks 88 

Nationalization of banks: 

bank manager state official 67 

competition eliminated 20, 63 

effect on economy 60-62 

farmers 69-70 

first step to control of economy 58-61 

loan refusal final 65 

return to competitive system impossible 72 

secrecy doubtful 68 

state monopoly 63 

surpluses for social services, not for producer 69-70 

taxation. 87-88 

Note issue, termination Jan. 1, 1950 102(2) 

Occupations of shareholders 6-7 

Ownership of banks 5-7 

Par value of bank shares 10-12, 102(5) 5, 6, 34 

Penalties: 

errors in returns 30 

prohibited business 26 

Pensions, bank employees 8 5, 96 

Profits: 

percentage of total assets 9 

undivided, shareholders' equity 11-12 

Prohibited business 26-29 

Protection of depositors 28, 30, 75-76 

Real estate security for loans prohibited 29 

Reconversion, post-war: services of banks 104 

Restrictions, business of banking 21, 26-29 

Returns: 

earnings and expenses 102 (6) 

loans to directors 94 

penalties for errors 30 

safeguard depositor and borrower 30 

Revision of Bank Act 18-19 

changes 1944 102, 103 

Safekeeping of securities 83, 101 

Safety and stability of banks during world crises 104 

39 



p 

20 


age 


20 




17 




15, 


16 


6 




24 




11, 


12 


13 




18 




19 




9 




29 




23 




7, 


23 


22 




24 




21, 


22 


23 




25 




24 




23 




24 




29 




34 




4 




4 





10 






8 






28, 


31 




5 






5, 


6 




8, 


9 




9, 


10, 


26 


9 






36 






8, 


9 




34 






30 






10 






10 






7 






3 3, 


34, 


35 


28, 


33 




36 







INDEX — Continued 

Question Page 
Safety deposit boxes: 

contents unknown to manager or staff 79 27 

insurance 82 28 

protection 81 28 

purpose 78 27 

not intended to hold cash 80 27 

Salaries and wages of employees 8 5 28 

Savings deposits, number of 100 32 

Secrecy re customers' business 16 6 

Section 88, loans under: 

Bank Act revision 1944 102(3) 34 

Services: 

increase since 1939 101 33 

reconversion, post-war 1 04 36 

Shareholders: 

audit 30 10 

equity 10-12 5,6 

dividends 9, 92 5, 29 

investment 8-12 5, 6 

number of 5 4 

occupations 6, 7 4 

percentage of Canadians 7 4 

Shares, par value 10-12, 102(5) 5, 6, 34 

Small loans 24-2 5 8 

Social security, bank employees 96 31 

Taxation 86-88, 102 (7) 28, 29, 34 

Towers, G. F., statements re: 

cash reserves 74 2 5 

credit expansion, cooperation of banks 40 14 

"fountain pen" theory 46 17 

loans and investments less than deposits 57 20 

loans "create" deposits theory 41, 44 15, 16 

Unclaimed balances 102 (4) 3 5 

Unemployment insurance, bank employees 97 32 

War financing 50 19 



40 



THE CANADIAN BANKERS' ASSOCIATION